Toward a more pro-growth overseas investment regime

New Zealand’s Overseas Investment Act has been subject to almost continuous reform since its passage in 2005, but this time the reforms are all pointed toward a single objective – to promote more foreign direct investment (FDI) into the New Zealand economy.

The signal changes are to:

reverse the presumption against FDI, allowing overseas investment to proceed unless there is an identified risk to New Zealand’s national interests
delegate more decision-making to the Overseas Investment Office (OIO), and
create an expectation on the OIO that most non-contentious applications will be cleared within 15 working days.

All of the proposed reforms are clearly built for speed and will allow a larger number of transactions to proceed much more quickly through the system. But there is no reduction in the scope of FDI screening.

Other features of the announced reform:

the existing consent requirements will be retained for farmland, fishing quota and residential/lifestyle land
all other investments in sensitive land or significant business assets will be subject to a new, consolidated and negatively-framed national interest test. Investors will no longer have to affirmatively establish either their good character or that the investment produces benefits to New Zealand. Those matters may, however, be taken into account in assessing whether a transaction is contrary to New Zealand’s national interest
the national interest assessment will be mandatory for certain identified classes of transactions: investments in ‘strategically important businesses and investments by foreign governments (or their associates)
in all other cases, the OIO will be responsible for ‘triaging’ applications (‘stage one’) and identifying those that may present risks to the national interest and therefore require a full assessment (‘stage two’), and
while national interest will remain ultimately a decision for Ministers, the Act will include factors the Minister must and may have regard to when making that judgement, to provide greater clarity for applicants.

Chapman Tripp comment

While the scale of the reform the Government is proposing is ambitious, there are pros and cons to the package in its current form.

The shift to a consolidated national interest assessment ought to simplify the application process which – together with the materially improved timeframes achieved by the OIO over recent years – should send an unequivocal encouragement to investors.

But applications will still be required for sensitive land and significant business assets, and the potential for intervention on national interest grounds is expanded. More transactions will be subject to a national interest assessment and that assessment will cover a wider range of considerations.

The downside of a regime focused on national interest, rather than defined categories of ‘public benefit’, is that it is deliberately open-textured. As the Cabinet paper expressly notes: national interest is a political judgement, not a legal or factual assessment. This follows the design of such powers in Australia, Canada and the United States.

This has two obvious implications:

deals that attract negative public attention become a political problem for the Government, which increases the risk of a decline on national interest grounds, and
the policy preferences of the government of the day will matter more than ever.This Government is pro-FDI and it wants an Act that allows it to express that preference, but this will not always be the case.

In 2019, for example, a Green Party Minister declined consent to expand a gold mine, against the advice of the OIO, in part because the Green Party regarded extractive industries as unsustainable and therefore contrary to New Zealand’s economic interests.

The issue was eventually resolved by the applicant re-applying and a different set of Ministers granting consent. But it illustrates the challenges inherent in an Act that affords Ministers discretion to intervene when they choose.

Political compromise is evident in the announcements made.

Investors eyeing up a golden visa will still be prevented from buying a home in New Zealand.
Preserving the foreign buyers ban for residential land means deals that might otherwise benefit from the new fast track consent process would still require approval under the existing tests where any residential land interests are involved.
The maintenance of the status quo for farmland (including a requirement to advertise to the New Zealand public before a sale can be entered into and to demonstrate that the transaction will provide a substantial benefit to New Zealand) will disappoint investors in renewable energy for whom these tests are not well-suited.

The legislation is being drafted now with the intention that it will be passed before the end of this year.